If you own shares of a private corporation and the firm pays for some of your personal expenses, count on adding that money to your taxable income. And the company probably won't be able to take those expenses as a tax deduction. This effectively results in the amount being taxed twice - once in the corporation's hands and again in the shareholder's hands.  

If the payments, or the use of assets, are charged to a shareholder loan account, the account is reduced by the corresponding amount. Taxable benefit amounts, such as auto expenses related to standby charges, are deductible to the corporation.

As a shareholder, it is often better to take the taxable benefit rather than paying the expenses out of after-tax money because:

• The tax on the benefit will range from 16 per cent up to 50 per cent of the amount.
  
  
• But if you pay the expenses out of pocket, you pay the entire amount.

But there are a couple of special cases: If the benefit is your home, it's better to own it yourself. If the benefit is an automobile, it's usually better to take a standby benefit. Here's a closer look at the two situations:

1. Home. An individual's principal residence is sheltered from capital gains taxes, while company-owned homes are not. As a shareholder, you do better owning the home yourself rather than paying a tax on the benefit that would equal the fair market rental of the house. From the corporate perspective, revenues and expenses related to the property do not qualify for the small business deduction, so your tax bill could get bigger.

2. Automobiles. Far more common, and contentious, are "standby charges" relating to automobiles. Here's how it works: Whether or not a car is available for personal, as well as business, use you must calculate a standby charge representing a percentage of either the original cost of the automobile or the costs of leasing a car. And this charge doesn't diminish over time; it's based on the company's original cost, plus GST and PST. If the holder transfers the car to the corporation, the standby charge is based on fair market value at the time of the transfer.

The standby charge is reduced only if business use is greater than 50 per cent and personal use is less than 20,000 kilometres a year. When the company pays such operating costs as insurance, fuel, oil and repairs, the shareholder's taxable income goes up. If the holder is also an employee or officer of the company, the benefit can be set at 50 per cent of the standby charge. So what are your best options?

Little Business Use: In this instance it is generally better for the holder/employee to take the standby charge rather than buy a car, given that a new automobile would be purchased or leased every two or three years. The cost of that would be higher than paying tax on the standby, which doesn't change between 50 per cent business use and no business use.

Major Business Use: If business use is substantial but less than 50 per cent, the holder benefits from being reimbursed for corporate use of a personal car. A reasonable allowance for business use, which is defined in the Income Tax Act, isn't a taxable benefit and the company can deduct it.